The shoe finally dropped. In the early morning of September 19th, Beijing time, the Federal Reserve Committee announced that it would lower the target range of the federal funds rate by 50 basis points to between 4.75% and 5.00%. This is the first time the Federal Reserve has started to cut interest rates since March 2020. Previously, in order to ease domestic inflation in the United States, the Federal Reserve raised interest rates 11 times in a row from March 2022 to July 2023, with a cumulative increase of 525 basis points.

This means that the US monetary policy has shifted from tightening to easing. Bitcoin has temporarily stopped its sluggish trend and rebounded before the interest rate cut decision, returning to $60,000 per coin. Since then, it has risen sharply and hit a 20-day high. Before the US stock market opened today, cryptocurrency concept stocks rose, with Coinbase (COIN.US) up more than 3% and MicroStrategy (MSTR.US) up more than 4%.

The interest rate cut cycle has begun, and the market is bullish overnight?

Since the beginning of 2022, the US federal funds rate has entered an upward cycle. Until the third quarter of 2023, the Federal Reserve intensively raised interest rates to combat inflation in the United States. Between January 2022 and August 2023, the effective interest rate increased from 0.08% to a target rate between 5.25% and 5.5%.

Now, with the Federal Reserve announcing a 50 basis point rate cut on September 18, lowering the target range of the federal funds rate to between 4.75% and 5.00%, it means that this round of tightening cycle has officially ended, and the published dot plot also shows that interest rates are expected to continue to be cut by 50 basis points this year.

Although the first interest rate cut was delayed by four months compared to market expectations, driven by this, the market's positive sentiment in the cryptocurrency industry has significantly strengthened, and people have begun to tend to invest funds in Bitcoin and other crypto assets.

The reason is very simple. Previously, the US money and bond markets, as the largest pools in the financial market, were full of liquidity. Now that interest rates have entered a downward cycle, the attractiveness of the money and bond markets will decrease, and people will begin to prefer investing their funds in assets that offer higher risks and returns.

Therefore, after the news was announced this morning, market sentiment was ignited in an instant. Bitcoin broke through the integer barriers of US$61,000 and US$32,000 in succession, reaching a high of US$62,589. At the same time, more than US$114 million were liquidated across the entire network in the past 12 hours, of which more than US$97 million were liquidated in long positions. The entire crypto market directly staged a bloody massacre of short sellers, especially Bitcoin short sellers.

However, it is worth noting that interest rate cuts are usually beneficial to risky assets, but for price trends, what is important is often not the factors that have been priced in, but the degree of deviation from market expectations.

In addition, some hidden fermentation events in the market in the past few months may also become overlooked positive/negative factors. Let us look forward to the main storyline that may take on the main responsibility in the second half of the year.

US spot ETFs continue to see inflows

Since July, the Bitcoin spot ETF has seen a new wave of capital inflows. Although it has experienced a significant weekly decline since the beginning of this month, the overall situation has reversed significantly compared to April and May.

As of the time of writing, the total net asset value of the Bitcoin spot ETF is US$54.85 billion, the ETF net asset ratio (market value as a percentage of the total market value of Bitcoin) is 4.61%, and the historical cumulative net inflow has reached US$17.44 billion.

Hong Kong digital asset ETFs are gradually gaining momentum

The market always likes to overestimate the short-term effects of new things and underestimate their long-term influence. In addition to the US ETF, the Hong Kong virtual asset spot ETF, which has been launched for nearly half a year, has a recent signal that is also worth paying attention to:

According to data from the Hong Kong Stock Exchange, the total trading volume of Hong Kong's three Bitcoin spot ETFs last week was approximately HK$84 million, a significant increase of more than 191% from HK$28.86 million in the previous week.

Among them, the two Bitcoin ETFs under China Asset Management and Harvest Asset Management, which are managed by OSL, had a weekly trading volume of more than HK$81 million, accounting for 96.1%, a significant increase of 244% from HK$23.55 million last week; the other spot Bitcoin ETF had a weekly trading volume of approximately HK$3.2688 million, accounting for approximately 3.9%, a decrease of more than 38% from HK$5.31 million last week.

The crypto regulatory wheel turns

The wind starts from the tip of the green reed. Against the backdrop of the 2024 election year, the macro environment has clearly improved recently, both at the regulatory level and at the funding level, brewing a new round of catalysts.

Overall, the election year is definitely a key factor. For the United States, the group that directly or indirectly holds cryptocurrency has become a force that cannot be ignored, especially when the poll data is tight, the "critical few" are very popular.

summary

The Fed's interest rate cut has many impacts on the world and China, with both positive and less positive effects. However, investors should note that a one-off interest rate cut may only cause disturbances to the market environment in the short term, and in the medium and long term, it is still necessary to focus on the changes in the entire interest rate cut cycle and make corresponding adjustments.